With each New Year comes a predictable set of traditions – the Oscars, Girl Scout cookies, NBA playoffs, and the April 15th tax deadline.
As with everything else in our new normal, this year’s events will be handled a little differently. The Academy Awards have been postponed to the end of April and films are streamed online instead of being shown in theaters.
We don’t expect the Girl Scouts to visit our office with their addicting little thin mints. They will practice their selling techniques on the Digital Cookie platform.
The NBA extended the season while reducing the number of games. Kobe will be with us in spirit and many arenas will still not have fans in the stands.
How will the filing of our taxes change for 2020? This year, the IRS has postponed the start of tax season, the first day it will begin processing tax returns, to February 12th and promised to expedite refunds during the pandemic.
If one of your New Year’s resolutions was to postpone filing your return (or renewal) at the last minute, this may be the perfect year to file early, or at least on time.
Your tax return may be easier than in years past. As a result, filing tax and removing it from your to-do list now may be easier than you think.
Due to the Tax Cut and Jobs Act 2017, more than 90% of taxpayers are no longer required to list their deductions. In the past, if you’ve dutifully filled out your tax authority’s organizer and collected and added receipts to list your deductions, you may not need to do so this year. (Your accountant may not have the heart to tell you that neither did you last year.)
Easier than before
The 2020 standard deduction is $ 12,400 if you are single and $ 24,800 if you are married and filing together. The standard deduction is greater if you are over 65 years of age or blind. You can choose the standard withholding amount instead of adding up your medical, mortgage, DMV fees, property taxes, and charitable deductions.
Congress also eliminated staff and capital costs with the amendment to the tax law.
If you go through the tax return you filed last year and you can’t find Appendix A, you didn’t list it and you probably won’t list it this year.
If you’ve been disappointed in not receiving a refund in recent years, it may be due to a change in withholding tax on your paycheck. The 2017 law change reduced how much tax was withheld from workers’ paychecks and this resulted in a reduction in the total amount of refunds taxpayers received when filing their tax returns. However, if your income were less in 2020, you could face a refund that you could collect now rather than later.
If the deductions have been more than income for the past year, you may have a net operating loss (NOL). The CARES Act provides a tax saving opportunity that may give you an extra refund that was not previously available.
The law allows NOLs from the 2018, 2019 and 2020 tax years to be carried back to the last five tax years. Losses in 2018 or 2019 that you previously couldn’t carry back can now be carried over to 2013 and onwards. This can result in a refund. If you had a loss in 2020, you can carry over that loss to 2015 and later for a refund now.
New economic funds
New stimulus packages use information from your accounting, payroll, and 2020 income tax returns to calculate the benefits you’re entitled to. It is therefore in your best interest to compile this information now.
The calculated performance of the new Paycheck Protection Plan for 2021 is based on either 2020 or 2019 payroll amounts. Firms that show a quarter-on-quarter reduction of 25% or more from 2019 to 2020 may qualify for a first or second round of PPP.
Other state and regional business grant programs are also based on comparisons of 2019 and 2020 income and net income amounts backed up by tax returns or accounting. As a bonus, remember that the income from PPP loan forgiveness is tax free. and you can deduct the expenses paid to meet the requirements for your PPP loan forgiveness.
If income were reduced in 2020, you could be eligible for subsidized health insurance premiums under the Affordable Care Act or California Care. Use your 2020 tax return information to calculate your benefits. Additional individual business reviews and other government benefits to stimulate the economy may be available this year and will likely be based on 2020 tax returns.
Can’t you find something
Don’t let a missing 1099 or W-2 stop you from submitting on time this year. Almost all of your tax information to prepare your tax return is available online from your employers, brokers, bankers and online at IRS.gov.
Even if you owe something
If you received Unemployment Benefit in 2020 and did not withhold any taxes, you may want to calculate these taxes now and file (and pay) them later.
Knowing how much you owe so you can plan is better than being caught off guard by a tax bill later. When using the services of a tax professional, do not wait for an appointment because you think you may owe something. It is better to book with them now before they get busy.
You can calculate your taxes and keep tax returns later if you owe income taxes. They can also help you create a payment schedule if you can’t afford to pay the tax.
When you are overdue
If your New Year’s resolution to file on time includes overdue returns, note that filing the older returns should be your top priority. You can always enter into payment arrangements with the IRS to extend your debt with a low-interest installment payment arrangement over a five-year period. You will not enter into a payment arrangement until all overdue returns have been processed. This may take some time.
You can easily set up a payment arrangement yourself if your balance is below $ 25,000 and you have a stable source of income to pay the balance. Not being able to pay your taxes should never be a reason not to file your taxes.
Hopefully most of us will be fully vaccinated within the next six months and we will all be delighted to get back to spending time with family and friends, traveling, and having fun. (Think of the roaring 20s after the 1918 flu epidemic.) Perhaps the best reason not to wait and archive now is one less task to do later when you’re supposed to be having fun.
Michelle C. Herting specializes in estate, trust, gift, and business valuations. She is also president of Inland Southern California’s Charitable Gift Planners.